Child ISAs to be introduced next year

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ISA accounts for children are to be introduced in autumn next year as a replacement for child trust funds (CTFs), the Government has announced.

While limits have not yet been announced, the accounts will be tax free, funds will be locked in until the child reaches adulthood and investments will be available in cash or stocks and shares.

Dubbed the 'Junior ISA', the account will replace the CTF which was cut shortly after the coalition Government took office in the spring.

Previously, parents received a £250 contribution after their child was born and another voucher of the same value on the child's seventh birthday which could be invested and topped up by parents, other family and friends.

It is estimated that the decision to scrap the CTF will save £320 million this year and more than £500 million in each future year

The Government will make no such contribution to the Junior ISA, but it said that the new accounts were recognition of a patent appetitive for families to have a clear, simple and tax-free option for their children.

"The introduction of this new account means that we can still offer people a clear way of saving for their children, while saving the half billion pounds a year that we currently spend on Child Trust Funds," said Mark Hoban, Financial Secretary to the Treasury.

While the accounts have received something of a positive reaction so far, the new accounts will have to offer better rates than can already be found with traditional savings products for children, it has been warned.

"By the time the child reaches 18, they could end up with a sizable tax free nest egg, which they should hopefully be able to transfer to an adult ISA," said Michelle Slade, spokesperson for Moneyfacts.co.uk.

"Hopefully, providers will embrace the scheme, launching competitive products that will benefit young savers."

"Interest rates will have to be higher than standard children's accounts to make it a worthwhile incentive."

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